Post-Investment Governance and Veto Rights: Board Structure, General Assembly and Shareholders’ Agreements
For a foreign VC investing in a Turkish company, “Post-Investment Governance and Veto Rights: Board Structure, General Assembly and Shareholders’ Agreements” is not just a theoretical heading – it is the toolbox that determines how much real control and protection the investor has after the money is wired. Turkish company law (especially the Turkish Commercial Code – TTK) gives a fairly standard framework, but most of the real fine-tuning is done by contract and careful drafting.
1. Board Structure: Seat and Observer Rights
In a typical venture deal with a Turkish joint stock company (A.Ş.), the investor will negotiate either:
- a board seat (the right to nominate one or more directors),
- a board observer, or
- a combination of both at different investment thresholds.
A board seat is normally secured by:
- Amending the articles of association so that one board position is reserved for an investor nominee (as long as they hold at least X% of shares); and
- Including parallel obligations in the shareholders’ agreement, where all shareholders commit to vote to elect that nominee.
Once appointed, the investor director owes fiduciary duties to the company, not to the fund. This is important for foreign investors used to strongly investor-driven boards; Turkish law expects directors to act in the best interest of the company as a whole.
A board observer has no vote but may:
- attend board meetings,
- receive agendas and board papers,
- request explanations and information.
Observers can be valuable where the investor wants close monitoring without taking on full director duties, or where local rules or conflicts of interest make a board seat less attractive. However, confidentiality, insider information and competition-law issues must still be managed.
2. Board-Level Veto Rights: Budget, Borrowing, Strategic Moves
Beyond simply sitting on the board, VCs will usually require veto rights over specific board decisions, sometimes called “reserved matters”. Common examples include:
- Approval of the annual budget and business plan;
- Borrowing or granting security above certain thresholds;
- Significant capital expenditure or acquisitions;
- Creation of liens or guarantees in favour of third parties;
- Changes in senior management (CEO/CFO appointment and dismissal);
- Entering into material related-party transactions.
Technically, these are implemented in two ways:
- By requiring that certain decisions be taken by a super-majority of the board that includes the affirmative vote of the investor director; and/or
- By providing in the shareholders’ agreement that the company and founders must not cause these actions to occur without prior written consent of the investor.
Care must be taken not to paralyse the company. If veto lists are too broad or thresholds too low, management may be unable to act commercially. On the other hand, well-calibrated board vetoes are crucial to avoid unwanted leverage, risky borrowing or uncontrolled dilution of value.
3. General Assembly: Shareholder-Level Vetoes and Protections
Certain decisions in Turkish law can only be taken by the general assembly of shareholders: capital increases, amendments of the articles, mergers, spin-offs, liquidation, sale of all or substantially all assets, etc. Post-investment, the VC typically wants a say over:
- New share issues (to avoid dilution);
- Changes to the articles that affect rights, classes of shares or governance;
- Changes in shareholder structure, particularly transfers of founder or controlling stakes;
- Liquidation, merger, de-merger or sale of a significant part of the business.
These protections can be structured as:
- Enhanced voting rights or special share classes in the articles (for example, certain decisions require the approval of the “Investor Share”); and
- Contractual vetoes in the shareholders’ agreement, where all parties undertake not to vote in favour of reserved matters without investor consent.
Because the trade registry and third parties will only see what is in the articles, high-impact vetoes (for example, on changes of share capital) are often mirrored into the articles to strengthen enforceability.
4. Shareholders’ Agreements and Voting Arrangements
The critical glue in Turkish VC deals is the shareholders’ agreement, which sits beside the TTK and the articles and regulates:
- Voting arrangements: how founders and investors will vote at the general assembly and, indirectly, at the board;
- Veto rights and reserved matters at both board and shareholder level;
- Transfer restrictions: lock-up, pre-emption, tag-along, drag-along;
- Information rights: regular financial reporting, access to management and auditors;
- Dispute resolution, exit mechanisms, valuation methods and more.
Under Turkish law, shareholders’ agreements are binding between the parties as a contract, but they are generally not automatically binding on the company or enforceable against third parties unless reflected in the articles or accompanied by appropriate instruments (such as irrevocable proxies, share pledges or penalties for breach).
Foreign investors should therefore ensure that:
- Core governance and veto terms are aligned with the articles where necessary; and
- There are effective contractual remedies if founders or other shareholders vote in breach of the agreement.
5. Practical Points for Foreign Investors
In practice, a sound post-investment governance package in Türkiye will:
- Secure at least one board seat and/or observer right;
- Define a targeted but effective list of board-level veto matters;
- Provide shareholder-level veto rights on structural and ownership changes;
- Embed key rights into both the articles and the shareholders’ agreement;
- Recognise that investor directors have duties to the company and must manage conflicts carefully.
When properly structured, post-investment governance and veto rights under Turkish law can give foreign VCs meaningful protection without undermining the founders’ ability to run and grow the business.
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